We started to hear rumblings last week about how residential construction loans are weighing heavily on local banks because, big surprise, some of the builders are having trouble keeping up with the payments.
While commercial loan delinquencies as a whole are still at historically low levels, the residential construction loans (which are grouped with commercial) are pushing the numbers up.
This morning FBR’s mortgage maven Paul Miller put out a note naming names:
At the largest 50 residential construction lenders, 1Q08 nonperformers totaled $7.8 billion, or 8.0% of such loans. Unfortunately, banks and thrifts just began to break out their one to four family residential construction loan portfolios on their call reports in 1Q08, so we don't have any historical context. Regardless, it is clear that growing construction nonperforming loans are an increasing concern for lenders.
As more small and mid-sized builders either go belly up or walk away from land at bargain basement prices, the banks will be left holding the bag. Which banks? FBR ranks banks and thrifts with market caps over $500 million by exposure to single-family construction lending to tangible equity:
The two financial institutions under FBR coverage that are most at risk due to their single-family exposures are SunTrust (STI – Underperform) and Washington Federal (WFSL – Market Perform). Other companies under FBR coverage that rank in the top 20 are First Horizon (FHN – Market Perform,), Zions (ZION – Market Perform), BB&T (BBT – Market Perform), National City (NCC – Market Perform), Synovus (SNV – Market Perform), and Regions (RF – Underperform).